Econ chapter 1 and 2
What can't be illustrated by using production possibilities frontier
Allocative efficiency
Q0 stands for
An old amount of action
TB0 stands for
An old total benefit
TC0 stands for
An old total cost
Basic circular flow model
Assumes that there are 2 economic agents household and firms and 2 market product and factor market
Consider a society facing the production possibilities frontiers in the figure shown. Out of the options provided, which is the most likely cause of a society moving from PPF1 to PPF2?
Better printing press technology
Scarce resource for firms
Capital Labor Natural resources
Rational people make a decision by
Comparing the marginal benefit and cost
Allocative efficiency occurs when
Consumers obtain products that maximize their own utility
opportunity cost(OC)
Cost of the next best alternative use of money, time, or resources when one choice is made rather than another
production possibilities frontier is a
Curve that shows the maximum attainable combinations of 2 outputs that can be produced given resources and technology
Two things a modeler can change if the model rejects the hypothesis
Data and assumptions
Consider a society facing the production possibilities frontiers in the figure shown. Out of the options provided, which is the most likely cause of a society moving from PPF3 to PPF1?
Death of workers due to COVID19
If MB (marginal benefit) is greater than MC(marginal cost)
Do more of action to increase net benefit (total benefit - total cost)
if MB(marginal benefit) is less than MC(marginal cost)
Do you less of action to increase net benefit
Simplification makes us focus on
Essentials of complex reality and useful answers to the economic problems
an example of incentive
Extra credit Bonus check
Scarcity for firms resources
Factors of production such as labor natural resources and capital
The PPF model can illustrate
Five basic economic concepts- scarcity, trade-offs opportunity cost efficiency and economic growth
Trade-off
Giving up one thing for another
Microeconomics topics
How households and firms make decisions How households and firms interact in the market How the government influences decisions Of households and firms
TC1 stands for
Is a new total cost
Government restrictions on booming industry
Is not a way for economics growth
opportunity cost
Is the value of the second best option given up to choose the best option a quantitive measure of a trade off relationship
What is an economic model?
It is a simplified version of some aspect of economic life used to analyze an economic issue.
Which of the following is not a characteristic of a good economic model?
It replicates closely a complex reality with much details.
If MB(Marginal benefit) Is equal to MC(marginal cost)
Keep level of action as it is since it is maximizing the net benefit
not a scarce resource for firms?
Knowledge
How do individuals maximize their utility
Labor given time
A negative incentive will make people
Less likely to do something by raising cost or lowering profit and one of its examples is a(n) grade reduction on late submission
2 fields in economics
Macro and Micro
What are the steps of developing an economic model
Make reasonable assumptions 's formulate a testable hypothesis test your hypothesis through data collection Test hypothesis through data collection revise the model by changing assumptions or data of both use the revised model to explain or predict economic events
MB stands for
Marginal benefit
Example of Econ in business or companies
Maximize profit from selling goods or services Maximize profit from buying factors of production given amount of factors of production
Government
Maximize the well being for the society
Example of Econ in governments
Maximize the well-being of the society individuals and firms given budget
Consumers
Maximize their utility
Example of Econ in Individuals (households)
Maximize utility from consuming products given income Maximize utility from providing working hours given time.
if marginal benefit is greater than marginal cost People will do
More action to increase net benefit
Consider a society facing the production possibilities frontiers in the figure shown. Out of the options provided, which is the most likely cause of a society moving from PPF1 to PPF3?
More workers
NB stands for
Net benefit
Q1 stands for
New amount of action
TB1 stands for
New total benefit
Efficiency
Occurs when people make decisions to reach the highest goals given scarce We cannot anyone better off without making someone else worse off
Scarcity
Peoples wants being greater than available sources
Consider the production possibilities frontier displayed in the figure shown. Which points are efficient and attainable with existing resources?
Points I and IV
Consider the production possibilities frontier displayed in the figure shown. Which of the following statements is currently true?
Producing at point II is impossible.
Any points on a production possibilities frontier are
Productively efficient becasue products are made at the minimum cost and a trade-off on those points always occurs.
productive efficiency occurs when
Products are produced at the minimum cost
Which occurs when our resources are limited despite our wants
Scarcity
Any points above a production possibility frontier are impossible to reach due to
Scarcity of resources and are called infeasible points.
Lily is thinking about going to the amusement park. She needs to pay the entrance fee of $25 and parking fee of $5 a day to enter the amusement park. Each ride in the amusement park costs $10. She is willing to pay $15 for the first ride but is willing to pay $10 for the second ride. She will take up to the _________ ride because at that ride, her marginal cost and marginal benefit are equal to each other at $_________.
Second; 10
What is a good economic model?
Stay it's assumption clearly and reasonably, predict causing affect, describe real life data
Which of the following statement is a normative statement?
The rent is too cheap in Fairfield, CA.
What is economics?
The study of how people manage resources given resources to achieve their goal
Macroeconomics
The study of the economy as a whole
Scarcity for individuals resources
Time and income
TB stands for
Total benefit
Which occurs when people choose one option by giving up alternatives
Trade off
Macroeconomics variables
Unemployment Total output Inflation
Individuals want to maximize
Utility
What is the number one question you ask when looking at scarcity
What are the wants in constraints of those involved
When are people rational
When they make decisions to achieve their highest goals given scarce resources and available information
Incentive
a reason for doing something, benefit and cost gain
An economic model is
a simplified representation of real economics phenomenon
productive efficiency
a situation in which a good or service is produced at the lowest possible cost
economic growth
an increase in the amount of goods and services produced per head of the population over a period of time.
How can marginal cost be measured
by the number of the other good given up to produce one more of one good or a slope of a PPF at each point and can be used to compare those opportunity costs among products.
Why is a concave more realistic than a linear PPF in that all of its resources have different efficiency
it has an increasing opportunity cost.
positive incentive
makes people more likely to do something by lowering their opportunity cost
rational behavior
making choices to achieve goals in the most effective way possible
MC stands for
marginal cost
Firms
maximize profits
What does PPF stand for
production possibilities frontier
Causes of economic growth
resources, technology, and institutions
allocative efficiency
the particular mix of goods and services most highly valued by society
Microeconomics
the study of how households and firms make decisions and how they interact in markets
scarce resources we value
time, money, labor, tools, land, and raw materials—exist in limited supply.
TC stands for
total cost
Refer to a table above that shows the units of courses, total benefit, and total cost for Matthew to answer the following questions. Units Total Benefit(TB, $) Total Cost(TC, $) 3 150 138 6 294 276 9 432 414 12 564 552 15 690 690 Matthew will take ________ units of courses to maximize his net benefit because at those units, his marginal benefit is _____________ the marginal cost.
9: Equal to
What is PPF
A Curve that shows maximum attainable combinations of two goods or services that can be produced giving resources and technology
negative incentive
A penalty that discourages a behavior (e.g., library fine, parking ticket).
What is the MB equation
(TB1-TB0)/(Q1-Q0)
What is the MC equation
(TC1-TC0)/(Q1-Q0)
Consider the production possibilities frontier displayed in the figure shown. The (marginal or unit) opportunity cost of a bushel of apple is __________watermelons and the total opportunity cost of moving from D to A is ___________ bushels of apples.
0.05: 300
Two Types of PPF
1. Linear PPF 2. Concave PPF
Three economic assumptions
1. People are rational 2. People respond to incentives 3. People make marginal decisions
Three ways to have economic growth
1.More resources such as Labor capital natural resources and in entrepreneurship 2. Technological advancements or positive technological change 3. Specializations and trade
Suppose that Matthew is taking 6 units right now. His marginal benefit is $48, which is calculated by (294-150)(6-3), and his marginal cost is $__________. As a result, he will take ____ units because his marginal benefit is higher than marginal cost.
46: More
Consider the production possibilities frontier displayed in the figure shown. The opportunity cost of one watermelon is:
20 bushels of apples
Suppose that Matthew is taking 12 units right now. His marginal benefit is $___________ and his marginal cost is $46, which is calculated by (552-414)/(12-9). As a result, he will take _______ units.
44: Fewer
